Fed's pessimism is a blow to US shares

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US stocks fell yesterday, led by financials in a late-stage sell-off, after the Federal Reserve gave a more pessimistic view on the economy, tempering hopes for a quick recovery.<br /><br />The Fed cut its 2009 forecast for gross domestic product and raised its outlook for unemployment, tempering the recent optimism that the economy might be turning the corner.<br /><br />Financial shares had led the market higher in morning trading after a successful share offering from <strong>Bank of America</strong> boosted optimism about the sector, but they reversed course as investors booked profits. Shares of <strong>Goldman Sachs</strong> fell 3.3 per cent to $136.44 and <strong>JPMorgan</strong> lost 3.5 per cent to $34.55. The <strong>KBW</strong> bank index lost 2.7 per cent.<br /><br />&ldquo;It sounds as though they (the Fed) are a little less excited about the economy than they were originally or as we were led to believe,&rdquo; said Paul Nolte, director of investments at Hinsdale Associates. &ldquo;It&rsquo;s certainly not encouraging of the green shoots that everybody else is talking about.&rdquo;<br /><br />Technology shares were also a negative as <strong>Hewlett-Packard</strong>, the world&rsquo;s biggest PC maker tempered its outlook for 2009. The stock fell 5.22 per cent to $34.67 and was the biggest drag on the Dow.<br /><br />The Dow Jones industrial average fell 52.57 points, or 0.62 per cent, at 8,422.28. The Standard &amp; Poor&rsquo;s 500 Index lost 4.64 points, or 0.51 per cent, at 903.49.<br /><br />The Nasdaq Composite Index was off 6.70 points, or 0.39 per cent, at 1,727.84.<br /><br />Energy stocks also lost ground even as crude oil surged. Shares of <strong>Exxon Mobil</strong> fell 1.3 per cent to $69.61 and was among the Dow&rsquo;s top drags.<br /><br />But stocks considered to be defensive plays were among gainers, including consumer staples and healthcare.<br /><br /><strong>McDonald&rsquo;s</strong> rose 4.4 per cent to $56.25 and was the biggest boost to the Dow after Deutsche Bank recommended a &ldquo;buy&rdquo; on the world&rsquo;s biggest fast-food chain. <strong>Procter &amp; Gamble</strong>, the maker of Tide laundry detergent and Pampers nappies, rose 2 per cent to $54.02 after Barclays raised the stock to &ldquo;overweight.&rdquo;<br /><br />On the healthcare front, <strong>Merck &amp; Co</strong> rose 1.2 per cent to $26.09, making it one of the standouts on the Dow.<br /><br />On Nasdaq shares of big cap tech stocks were among the top drags following the disappointment from <strong>Hewlett-Packard</strong>, a technology bellwether. <strong>Apple</strong> fell 1.2 per cent to $125.87, while <strong>Google</strong> fell 0.4 per cent to 397.18.